Expedia 2005 Annual Report Download - page 87

Expedia, Inc.
Notes to Consolidated Financial Statements Ì (Continued)
foreign operating losses. The tax benefit for approximately $4.6 million of the valuation allowance recorded
at December 31, 2005 will be recorded as a reduction of goodwill if recognized in future years.
A reconciliation of total income tax expense to the amounts computed by applying the statutory
federal income tax rate to earnings from continuing operations before income taxes and minority interest is
as follows:
Year Ended December 31,
2005 2004 2003
(In thousands)
Income tax expense at the federal statutory rate of 35% ÏÏÏÏÏÏ $144,855 $ 94,340 $89,424
State income taxes, net of effect of federal tax benefit ÏÏÏÏÏÏÏ 8,302 4,746 4,646
Non-deductible stock compensation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 15,030 Ì Ì
Unrealized loss on derivative ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,115 Ì Ì
Change in valuation allowance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 9,681 2,474 Ì
Other, netÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5,994 4,811 3,132
Income tax expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $185,977 $106,371 $97,202
By virtue of the previously filed separate company and consolidated income tax returns filed with
IAC, we are routinely under audit by federal, state, local and foreign authorities. These audits include
questioning the timing and the amount of deductions and the allocation of income among various tax
jurisdictions. Annual tax provisions include amounts considered sufficient to pay assessments that may
result from the examination of prior year returns; however, the amount ultimately paid upon resolution of
issues raised may differ from the amount provided. Differences between our contingent tax liabilities and
the amounts actually owed are recorded in the period they become known. We believe our contingent tax
liabilities are adequate in the event the tax positions are not ultimately upheld.
In addition, we have a tax allocation agreement with the Microsoft Corporation as well as the Tax
Sharing Agreement with IAC. For additional information about these agreements, see Note 17, Related
Party Transactions.
NOTE 14 Ì Common Stock, Class B Common Stock and Preferred Stock
Common Stock and Class B Common Stock
Our authorized common stock consists of 1.6 billion shares of common stock with par value of
$0.001 per share, and 400 million shares of Class B common stock with par value of $0.001 per share.
Both classes of common stock qualify for and would share equally in dividends, if declared by our board of
directors, and generally vote together on all matters. Common stock carries one vote per share and Class B
common stock carries 10 votes per share. Holders of common stock, voting as a single, separate class are
entitled to elect 25% of the total number of directors. Class B common stockholders may, at any time,
convert their shares into common stock, on a one for one share basis. Upon conversion, the Class B
common stock is retired and is not available for reissue. In the event of liquidation, dissolution, distribution
of assets or winding-up of Expedia, Inc., the holders of both classes of common stock have equal rights to
receive all the assets of Expedia, Inc. after the rights of the holders of the preferred stock have been
satisfied.
Preferred Stock
Our preferred stock has a face value of $22.23 per share; each share is entitled to an annual dividend
of 1.99%. Each preferred stockholder is entitled to two votes per share. Preferred stockholders may, at
F-30